From SCDigest's On-Target e-Magazine
- Oct. 9, 2013 -
Supply Chain News: Giant Accenture Roils Procurement Outsourcing Market with Acquisition of Procurian
Two Firms Together Will Control near to 30% of Procurement Outsourcing Market; Other Smaller Providers Now in Play?
SDigest Editorial Staff
A major deal was announced in the procurement process outsourcing market last week, as giant consulting and service firm Accenture acquired focused rival Procurian for some $375 million in a deal that will certainly cause the deck chairs in the space to move.
Procurement process outsourcing covers a wide range of services, but the core is in effect taking over some part of a company's procurement processes and delivering this work as a service, though vendors usually package this basic foundation in numerous separate services.
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This deal would appear to give Accenture a very strong position in the space. HfS estimates that Accenture has the top market share in the space of 19.4%, while Procurian had 8.9% of the market. |
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What Do You Say?
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Why would a company turn to a procurement outsourcing provider rather than managing the work in-house? There are several potential reasons, which include:
• Procurement is not viewed as a core competence, and thus a candidate for outsourcing.
• Procurement outsourcers may have better expertise and talent.
• Procurement outsourcers almost always will have access to superior technology than the average company.
• Procurement outsourcers may be able to leverage spend across numerous clients to get better vendor pricing.
The point about "core competence" is important but must be clarified. Most procurement outsourcing deals for product-based companies (manufacturers, wholesalers, retailers) involve indirect materials (MRO, office supplies, etc.) and business services (legal, consulting, etc.) not direct materials used in production or sourced for resale. The procurement of direct materials is viewed as much more strategic and of course is more closely connected to a company's other supply chain processes.
However, Procurian especially has been making in-roads into the direct materials area as well.
In the past decade, as dozens of companies and virtually all of the large consulting firms developed procurement outsourcing offerings, many projected a huge growth rate for the industry.
As usual those projects turned out to be a bit too rosy, but most estimates are that in recent years, growth has been about a solid 10% annually.
Analysts at research firm HfS say the global procurement outsourcing market will reach some $3.4 billion on 2013, and will grow at annual rate of 12% over the next 5 years.
The Accenture acquisition of Procurian unites two giants in the procurement outsourcing space. HfS has just five procurement outsourcing firms in its 2013 "winner's circle" list of the top providers, and Accenture and Procurian are both on there, joined by IBM, GEP, and Infosys.
This deal would appear to give Accenture a very strong position in the space. HfS estimates that Accenture has the top market share in the space of 19.4%, while Procurian had 8.9% of the market.
Other major procurement outsourcing players include Capgemini, Proxima, Xchanging and Genpact.
Procurian had revenue for the last 12 months of about $142.6 million, so Accenture is paying more than twice the company's sales, a high multiple for a services company. However, Accenture has almost $6 billion in cash, so it is well positioned to make strategic investments, even if they are pricey.
(Sourcing and Procurement Article Continues Below)
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Three years ago, Accenture acquired Ariba's strategic sourcing practice.
 Headquartered in King of Prussia, PA, Procurian has locations in the US, India, U.K, Czech Republic, China and Brazil, with a total some 780 employees. It was a subsidiary of technology firm ICG, and is known in part for its technology.
"The merger between these two companies creates a clear procurement BPO market leader in terms of market share, client base, vertical industry expertise and breadth of service offerings across the procurement and supplier management domains," said HfS in a note on the deal.
The Accenture move also takes some of the wind out of the sales of competitors Capgemini and Genpact, both of which had partnerships with Procurian to provide capabilities their own practices lacked.
That may naturally lead to these or other large players seeking to make their own acquisitions, with "GEP (Global eProcure), Proxima, Denali and even, potentially, Xchanging, now coming into play as potential acquisition targets for the Tier 1 BPOs seeking further sourcing and technology depth and expertise," according to HfS.
Procurian top clients include Hertz and Kimberly-Clark, and the company has an especially strong presence in consumer goods, a major overall focus area for Accenture.
Any thoughts on the Accenture acquisition of Procurian? What about procurement outsourcing generally? Let us know your thoughts at the Feedback section below.
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